Loan growth, margin tailwinds to support HDFC, ICICI Bank in Q3

However, seasonal marginal pressures on asset quality, particularly agriculture-linked products, may lead to a moderate rise in slippages.

Besides the two major banks, RBL Bank, Yes Bank, IDBI Bank, UCO Bank, and Punjab and Sind Bank will announce their Q3 earnings on Saturday.

HDFC Bank

HDFC Bank is expected to report a 10% year-on-year rise in net profit to ₹18,366 crore, according to 20 analysts polled by Bloomberg. This is based on better momentum expected in the private lender’s loan growth. The bottomline, however, is seen falling by over 1% sequentially.

The bank reported nearly 12% year-on-year and 3% quarter-on-quarter growth in gross advances for the three months ended December, as per provisional numbers disclosed by the lender.

HDFC Bank is poised for steady loan growth amid broad-based growth and healthy disbursement activity, Motilal Oswal Financial Services said in a report. It expects 3% sequential rise in advances and deposits.

However, the key factor to watch out in this earnings season will be deposit traction and the mix of ‘retail and others’, Elara Capital India said in a report on 26 December.

The brokerage estimates the bank’s CD ratio to rise within 98-100% and expects further commentary on the same for the direction of CD ratios.

While asset quality is seen steady with stable credit costs, seasonal stress in the agriculture sector and Kisan Credit Cards scheme will lead to moderate rise in slippages. However, provisions are expected to be lower sequentially, following a one-off higher provision a quarter ago.

Profitability of the bank is also expected to improve, with net interest income seen at ₹32,856 crore, up over 7% year-on-year and 4% quarter-on-quarter. Consequently, net interest margins of the bank are seen at 3.38% against 3.27% a quarter ago, 13 analysts polled by Bloomberg showed.

“The fall in yield on advances will be completely offset by the fall in cost of deposits, hence, NIM will be marginally higher sequentially," Systematix Institutional Equities said in a pre-earnings note on 5 January.

Motilal Oswal expects the bank’s margins to improve by 6 basis points quarter-on-quarter and believes the ‘trough of NIMs’ to be largely behind for the lender. “We expect NIMs to improve in 3Q/4Q before gaining traction in FY27," it said.

Fee income of the bank is broadly seen as stable sequentially, but other income will be lower due to higher recoveries in Q2FY25, and operational expenses will be well in control, Systematix said.

ICICI Bank

For ICICI Bank, brokerages are largely pencilling in another steady quarter, marked by healthy growth, stable margins and robust asset quality. However, seasonal agriculture stress is likely to push up slippages marginally.

According to 13 analysts polled by Bloomberg, ICICI Bank is expected to report a 6% year-on-year and 1% quarter-on-quarter rise in net profit to ₹12,493 crore. This will be led by steady loan growth and deposit growth.

Brokerage Motilal Oswal expects the second-largest private sector bank to report almost 4% on-quarter growth in both loans and deposits. For the quarter ended September, the bank’s domestic loans grew nearly 11% on year and deposits rose over 9%.

Slippages are expected to rise sequentially, “driven seasonally high agri slippages", which will also lead to a slight increase in provisions.

Operating expenses are expected to be broadly stable on-quarter and fee income to be higher with business growth. However, rise in bond yields has weighed on treasury income. NII of the bank is seen at ₹22,212 crore, up 9% on year and 3% on quarter, according to Bloomberg’s poll.

Analysts remain divided on how the bank will fare on the margin front. While Elara Capital and Motilal Oswal expect the bank’s margins to bear fruit from the cut in cash reserve ratio, with the latter expecting a 3 bps improvement sequentially, YES Securities expects it to be lower.

Systematix and Bloomberg estimates expect NIMs to remain stable. For the quarter ended September, the bank’s NIM was at 4.30%.

Any clarity on the bank’s chief Sandeep Bakshi’s extension will be keenly watched.

Additionally, management commentary from both banks on loan and deposit growth, CD ratio, trajectory on NIM and asset quality will be on analysts' radar.